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America Has Lost the Trade War with China, and the Real Pain Has Yet to Begin

Summary:
Corporate America sacrificed national interests in service of greed, and so did the U.S. government. As we all know, the source of Corporate America’s unprecedented explosion in profits in the 21st century is the offshoring of manufacturing to China. If you doubt this, please study the chart below of corporate profits. Apologists claim many excuses in an attempt to evade the central role of offshoring production to China, but they all ring hollow: no, it wasn’t increasing productivity or automation or Federal Reserve magic, it was shipping production to China and other low-labor-cost nations. Whether we like to admit it or not–mostly not–the American economy is entirely dependent on manufacturing in China. America’s short-sighted obsession with increasing profits to fund buybacks and

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Corporate America sacrificed national interests in service of greed, and so did the U.S. government.

As we all know, the source of Corporate America’s unprecedented explosion in profits in the 21st century is the offshoring of manufacturing to China. If you doubt this, please study the chart below of corporate profits. Apologists claim many excuses in an attempt to evade the central role of offshoring production to China, but they all ring hollow: no, it wasn’t increasing productivity or automation or Federal Reserve magic, it was shipping production to China and other low-labor-cost nations.

Whether we like to admit it or not–mostly not–the American economy is entirely dependent on manufacturing in China. America’s short-sighted obsession with increasing profits to fund buybacks and golden parachutes for corporate insiders and vast fortunes for financiers has led to a dangerous dependency that has handed China tremendous leverage, which China is now starting to make use of. (And why not? Wouldn’t the U.S. start using the same leverage if it could?)

A long-time U.S. correspondent who prefers to remain anonymous for obvious reasons recently shared his experiences with parts shortages and price increases from previously reliable suppliers in China. Here is his account of the disruptive shift in the supply chain of essential parts from China to the U.S.

China is laying siege to the USA by slowing down production and delivery of goods. It doesn’t take much to hang up US production, just one missing item can do it. So much stuff is sourced through China they can affect all supply chains. Semiconductors are just the canary–because the chains are so long and complex, and specialized materials are required, etc. But it is happening everywhere.

I have a little manufacturing company and I am seeing this in supply lines. I sent an order to China for printed circuit boards (US prices are astronomical because of various factors). They don’t get back for a week, then they quote, then I send money, then they sit on it, then I call and they say they are having problems with some process… etc. But all the suppliers are like this, it is not an isolated incident. They are sandbagging.

So just as in laying siege, the attackers have the food outside the castle and wait for the people inside to starve.

As prices rise the Chinese manufacturers take bigger profits so the slowdown effects on that end are mitigated. For products they do not have a monopoly on, like PC boards, they slow down. for things like LCD displays and NFeB magnets, the items become unavailable (try buying magnets on Amazon).

I have to say this is a brilliant idea on China’s part, and no one on this side has realized the situation yet. This plan is straight out of Sun-Tzu. implications? inflation and shortages will continue for a long time… maybe forever. The only long-term solution is repatriation of manufacturing to the US. But it is going to cause some serious hurt, vastly more than the sanctioning of Chinese tech companies.

i just sent a request for quote for some radio chips I use to Alibaba. they are $1 each and there are many vendors. I sent notes to 2 vendors i used before and after 4 or 5 days got a ping back that my requests were cancelled. i wound up getting the parts–for 2x the price– from Hong Kong, which at the moment seems to be something of a channel to the mainland. But I expect they will close that leak pretty soon.

I have long made the case that manufacturing, energy and food are all fundamentally national security issues. Those benefiting from “free trade” (there is no such thing, that’s just a handy PR cover) have sold the unwary the fraudulent notion that “everyone benefits” from globalization. Nothing could be further from reality. A handful of corporate insiders and financiers have benefited at the expense of everyone else.

And now the chickens are coming home to roost. Essential parts and feedstocks become unavailable for all sorts of flimsy excuses, prices double, triple, then double again, and since we’ve allowed our entire economy to become dependent on a handful of sources for these essentials because that dependency maximized profits, then there are no alternatives.

America has already lost the trade war, but the pain has yet to begin. Corporate America sacrificed national interests in service of greed, and so did the U.S. government. Now it’s too late, and all the good seats at the banquet of consequences have already been taken.

America Has Lost the Trade War with China, and the Real Pain Has Yet to Begin

America Has Lost the Trade War with China, and the Real Pain Has Yet to Begin

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Charles Hugh Smith
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites. His commentary is featured on a number of sites including: Zerohedge.com., The American Conservative and Peak Prosperity. He graduated from the University of Hawaii, Manoa in Honolulu. Charles Hugh Smith currently resides in Berkeley, California and Hilo, Hawaii.

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